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Journal of Economic Integration 2002 September;17(3) :527-553.
Productivity and Real Exchange Rates: Some Empirical Examples

Manuchehr Irandoust Boo Sjöö 

University of Örebro
University College of Skövde
Copyright ©2002 Journal of Economic Integration
This paper examines the relevance of the Balassa-Samuelson productivity-bias hypothesis for explaining long-run permanent shocks in the real exchange rates. The sample consists of yearly data on real exchange rates and productivity for six OECD countries. On the basis of Johansens maximum likelihood tests and VECMs, we find little support for the hypothesis. Our results provide a weak support for monetary integration in Europe. JEL Classifications (E31, F31, F41, C32)
Keywords: Real Exchange Rate | Productivity Differential | Cointegration | Balassa-Samuelson's Effect | Johansen's Technique
1. Rogoff, K. (1992) "Traded goods consumption smoothing and the random walk behaviour of the real exchange rate", NBER Working Paper No. 4119.
2. Samuelson, P. A. (1964) "Theoretical notes on trade problems", Review of Economics and Statistics 46, 145-164.
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